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VaR without Correlations for Portfolios of Derivative Securities

In: Simulating Security Returns: A Filtered Historical Simulation Approach

Author

Listed:
  • Giovanni Barone Adesi
  • Kostas Giannopoulos
  • Les Vosper

Abstract

We propose filtering historical simulation by GARCH processes to model the future distribution of assets and swap values. The price changes of options are computed by full re-evaluation on the changing prices of underlying assets. Our methodology implicitly takes into account the correlations of assets without restricting their values over time or computing them explicitly. VaR values for portfolios of derivative securities are obtained without linearizing them. Historical simulation assigns equal probability to past returns, neglecting current market conditions. Our methodology is a refinement of historical simulation.

Suggested Citation

  • Giovanni Barone Adesi & Kostas Giannopoulos & Les Vosper, 2014. "VaR without Correlations for Portfolios of Derivative Securities," Palgrave Macmillan Books, in: Giovanni Barone Adesi (ed.), Simulating Security Returns: A Filtered Historical Simulation Approach, chapter 2, pages 9-29, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-46555-9_2
    DOI: 10.1057/9781137465559_2
    as

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